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Fiscal Policy and Labor Markets in Low Income Economies

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dc.description.abstract We study the implications of changes in revenue-neutral distortionary fiscal policy on sectoral employment, unemployment, and aggregate outcomes in low income economies. We propose a general equilibrium framework with search frictions with (1) endogenous labor force participation decisions; (2) a distinction between agricultural and non-agricultural self-employment; and (3) public capital in private-sector production. Revenue-neutral changes in taxes on salaried-firm profits, capital gains, and investment that offset a fall in non-distortionary revenue increase salaried employment, output, consumption, and unemployment, and reduce self-employment in non-trivial ways. Conversely, similar revenue-neutral changes in consumption taxes increase self-employment and reduce salaried employment, output, and consumption. Abstracting from the presence of non-agricultural self-employment and endogenous participation decisions—two margins of central importance low-income economies—imply minuscule employment and aggregate responses to plausible revenue-neutral changes in fiscal policy. en
dc.title Fiscal Policy and Labor Markets in Low Income Economies en
dc.contributor.author Finkelstein Shapiro, Alan
dc.contributor.author González Prieto, Nathalie
dc.date.accessioned 2017-02-28T22:07:40Z
dc.date.available 2017-02-28T22:07:40Z
dc.date.issued 2017-02-28
dc.identifier.uri http://lacer.lacea.org/handle/123456789/61316
lacea.language.supported en
dc.description Working paper
dc.language.iso en
dc.subject Low Income Economies
dc.subject Fiscal Policy
dc.subject Labor Markets
dc.subject Informality
dc.subject Search Frictions
dc.type Working Paper


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